Trusts

Question 1

WILLS & TRUSTS – Trusts

1. Trust Formation

Answer 1

WILLS & TRUSTS – Trusts

1. Trust Formation

To create a valid express trust in California, there must be: (1) a settlor with capacity to transfer property; (2) a present intention by the settlor to create a trust; (3) trust property (res); (4) a valid trust purpose that is not illegal or against public policy; and (5) an ascertainable beneficiary (unless it’s a charitable trust). A trust relating to real property must be in writing to satisfy the Statute of Frauds.

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California Probate Code sections 15200 et seq. govern the creation of trusts. A trust is a fiduciary relationship in which one person (the trustee) holds legal title to property (the trust res) for the benefit of another person (the beneficiary).
Requirements for a Valid Express Private Trust:
- Settlor with Capacity: The settlor (the person creating the trust) must have the legal capacity to transfer property. This generally means they must be of legal age and sound mind.
- Present Intent to Create a Trust: The settlor must manifest a present intention to create a trust relationship. This intent must be clear and unambiguous.
- Precatory Language: Words of hope, wish, or recommendation (e.g., “I hope my son will use this money for his education”) are generally not sufficient to create a trust. The language must impose a mandatory obligation on the trustee.
- Trust Property (Res): There must be specific, identifiable property that is transferred to the trust. This can be real property, personal property, tangible or intangible property, but it must be presently existing property, not a mere expectancy (e.g., not “whatever I inherit from my aunt”).
- Valid Trust Purpose: The purpose of the trust must be legal and not against public policy. A trust cannot be created to defraud creditors or to accomplish an illegal objective.
- Ascertainable Beneficiary: There must be one or more beneficiaries who are identifiable now or will be ascertainable within the period of the Rule Against Perpetuities. This requirement does not apply to charitable trusts.
- Trustee
Methods of Trust Creation:
- Declaration of Trust: The settlor declares themselves to be the trustee of specific property for the benefit of beneficiaries. The settlor retains legal title but holds it in a fiduciary capacity.
- Transfer in Trust: The settlor transfers legal title to property to another person as trustee, to hold and manage for the benefit of beneficiaries.
Writing Requirement:
- Real Property: A trust relating to real property must be in writing to satisfy the Statute of Frauds.
- Personal Property: A trust of personal property can be created orally, but clear and convincing evidence is typically required to prove an oral trust. A writing is always recommended.
Other Types of Trusts:
- Charitable Trust: A trust created for a charitable purpose (e.g., education, religion, poverty relief). Charitable trusts do not require ascertainable beneficiaries.
- Resulting Trust: An implied trust that arises by operation of law in certain circumstances (e.g., when an express trust fails, or when a purchase money resulting trust is presumed).
- Constructive Trust: An equitable remedy imposed by a court to prevent unjust enrichment.
Failed Trusts: If an attempt to create an express trust fails (e.g., for lack of a beneficiary or an invalid purpose), the property may be returned to the settlor (or the settlor’s estate) on a resulting trust.
Policy: The requirements for trust creation are designed to ensure that there is clear evidence of the settlor’s intent to create a trust, that the trust property is identifiable, and that the trust has a valid purpose and beneficiaries.

Question 2

WILLS & TRUSTS – Trusts

2. Trustee Duties Owed to Beneficiaries

Answer 2

WILLS & TRUSTS – Trusts

2. Trustee Duties Owed to Beneficiaries

Under California Probate Code §§ 16000 et seq., a trustee is a fiduciary and owes the beneficiaries the highest duties of good faith, loyalty, and care. These duties include:
- Duty to Administer the Trust According to its Terms.
- Duty of Loyalty (no self-dealing, no conflicts of interest).
- Duty of Impartiality (if multiple beneficiaries).
- Duty of Care (prudent administration).
- Duty to Account and Inform.
- Duty Not to Delegate (responsibilities the trustee can reasonably perform).
- Duty to Control and Preserve Trust Property.
- Duty to make trust property productive.

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A trustee in California is a fiduciary with respect to the beneficiaries of the trust, owing them the highest duties of good faith, loyalty, and care. These duties are extensively codified in the California Probate Code, particularly sections 16000 et seq.
Key Fiduciary Duties:
- Duty to Administer the Trust (Probate Code § 16000):
- The trustee must administer the trust according to its terms (the trust instrument).
- If the terms are silent or unclear, the trustee must administer the trust according to the California Probate Code.
- Duty of Loyalty (Probate Code § 16002):
- The trustee must administer the trust solely in the interest of the beneficiaries.
- No Self-Dealing: The trustee cannot engage in transactions with the trust in which the trustee has a personal interest (e.g., buying trust property, borrowing from the trust), unless specifically authorized by the trust instrument or court order.
- No Conflicts of Interest: The trustee must avoid any situation where their personal interests conflict with the interests of the beneficiaries.
- Duty of Impartiality (Probate Code § 16003):
- If there are multiple beneficiaries, the trustee must act impartially towards them, considering their respective interests.
- This is particularly important when there are different classes of beneficiaries (e.g., income beneficiaries and remainder beneficiaries). The trustee cannot favor one class over another unless the trust instrument authorizes it.
- Duty of Care (Prudent Administration) (Probate Code § 16040):
- The trustee must administer the trust with reasonable care, skill, and caution, as a prudent person would, considering the purposes, terms, distribution requirements, and other circumstances of the trust.
- Prudent Investor Rule (Probate Code § 16045 et seq.): This rule governs investment decisions. The trustee must invest and manage trust assets as a prudent investor would, considering the purposes, terms, distribution requirements, and other circumstances of the trust. Diversification is generally required unless it is not prudent to do so.
- Duty to Account and Inform (Probate Code §§ 16060-16064):
- The trustee must keep the beneficiaries reasonably informed about the administration of the trust.
- The trustee must provide an accounting of the trust property, receipts, and disbursements upon reasonable request by a beneficiary (and at least annually, unless the trust instrument or court order provides otherwise). The accounting must contain specific information as required by the Probate Code.
- Duty Not to Delegate (Probate Code § 16012):
- The trustee cannot delegate the entire administration of the trust to others.
- The trustee can delegate specific tasks, but must exercise general supervision over the person performing the delegated tasks. The trustee remains ultimately responsible.
- Duty to Control and Preserve Trust Property (Probate Code § 16006):
- The trustee must take reasonable steps to take control of the trust property (e.g., taking possession of assets, recording deeds).
- The trustee must take reasonable steps to preserve the trust property and protect it from loss or damage (e.g., obtaining insurance, making repairs).
- Duty to Make Trust Property Productive:
Remedies for Breach of Duty: If a trustee breaches any of these duties, the beneficiaries may have various remedies, including:
- Compelling the trustee to perform their duties.
- Enjoining the trustee from committing a breach of trust.
- Compelling the trustee to redress a breach of trust by paying money or restoring property.
- Appointing a receiver or temporary trustee.
- Removing the trustee.
- Reducing or denying the trustee’s compensation.
- Setting aside the trustee’s wrongful act.
- Tracing and recovering trust property that has been wrongfully disposed of.
Policy: These strict fiduciary duties are designed to protect the interests of the beneficiaries, who are often vulnerable and dependent on the trustee’s proper administration of the trust. They ensure that the trustee acts solely for the benefit of the beneficiaries and with the utmost care and loyalty.

Question 3

WILLS & TRUSTS – Trusts

3. Cy Pres Doctrine

Answer 3

WILLS & TRUSTS – Trusts

3. Cy Pres Doctrine

Under the cy pres doctrine (California Probate Code § 15409), if a particular charitable purpose becomes unlawful, impossible, or impracticable to fulfill, the court may modify or terminate the trust and direct that the trust property be applied to a charitable purpose that is as near as possible to the original purpose, provided the settlor had a general charitable intent, rather than a specific intent to benefit only the named charity or purpose.

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The cy pres doctrine, codified in California Probate Code § 15409, is an equitable doctrine that allows a court to modify or terminate a charitable trust when its original purpose becomes unlawful, impossible, or impracticable to carry out. It is a powerful tool for preserving charitable gifts and ensuring that the settlor’s general charitable intent is fulfilled, even when changed circumstances make the original specific purpose unworkable.
Requirements:
- Valid Charitable Trust: The doctrine applies only to valid charitable trusts (trusts created for charitable purposes, such as education, religion, poverty relief, etc.).
- Original Purpose Unlawful, Impossible, or Impracticable: The specific charitable purpose stated in the trust instrument must have become:
- Unlawful: The purpose is now illegal.
- Impossible: The purpose can no longer be achieved (e.g., a trust to fund research for a disease that has been eradicated).
- Impracticable: The purpose, while technically possible, is no longer feasible or reasonable to carry out (e.g., a trust to establish a hospital in a location where there is no longer any need for one, and the funds are insufficient to establish it elsewhere). The funds are insufficient.
- General Charitable Intent: This is the crucial requirement. The settlor must have had a general charitable intent – a broader intention to benefit charity generally, rather than a specific, exclusive intent to benefit only the named charity or only in the precise manner stated in the trust.
- Evidence of General Intent: Courts look to the trust instrument itself, as well as extrinsic evidence, to determine the settlor’s intent. Factors suggesting general intent include:
- Broadly stated charitable purposes.
- Gifts to multiple charities.
- A gift over to another charity if the original purpose fails.
- The absence of a gift over to a non-charitable beneficiary if the original purpose fails.
- Specific Intent: If the settlor’s intent was solely to benefit the specific named charity or purpose, and no other, cy pres will not apply, and the trust will likely fail, with the property reverting to the settlor’s estate.
Procedure: The court, upon petition (usually by the trustee or the Attorney General), can modify the trust’s terms (administrative or dispositive provisions) or terminate the trust entirely, and direct that the trust property be applied cy pres – that is, in a manner as near as possible to the settlor’s original charitable purpose, consistent with their general charitable intent.
Examples:
- Valid Cy Pres: A trust is created to fund scholarships for students at a specific school, and that school closes. If the settlor had a general intent to benefit education, the court could apply cy pres to allow the funds to be used for scholarships at a similar school.
- Cy Pres Not Applicable: A trust is created to fund research into a specific, rare disease only at a particular university. If the university stops conducting that research, and the settlor’s intent was clearly limited to that specific university and that specific research, cy pres might not apply, and the trust might fail.
Comparison to Deviation:
- Cy Pres: Applies to charitable trusts when the charitable purpose becomes impossible, illegal, or impracticable.
- Deviation: Applies to both charitable and private trusts when unforeseen circumstances make it impossible or impracticable to comply with the administrative terms of the trust (e.g., a restriction on selling certain property). Deviation does not change the purpose of the trust.
Policy: Cy pres is designed to prevent charitable gifts from failing due to unforeseen changes in circumstances, and to ensure that the settlor’s general charitable intent is carried out as nearly as possible.

Question 4

WILLS & TRUSTS – Trusts

4. Charitable Trusts

Answer 4

WILLS & TRUSTS – Trusts

4. Charitable Trusts

A charitable trust is a trust established for a charitable purpose, such as the relief of poverty, the advancement of education or religion, the promotion of health, or other purposes beneficial to the community. Unlike private trusts, charitable trusts do not require ascertainable beneficiaries; the beneficiaries are the public or a segment of the public.

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A charitable trust is a trust created for a charitable purpose, benefiting the public or a significant segment of the public, rather than specific, identifiable individuals. California law, like the law of other jurisdictions, favors charitable trusts and provides them with special rules and benefits.
Requirements:
- Charitable Purpose: The trust must have a recognized charitable purpose. This is broadly construed and includes:
- Relief of poverty.
- Advancement of education.
- Advancement of religion.
- Promotion of health.
- Governmental or municipal purposes (e.g., parks, libraries).
- Other purposes the accomplishment of which is beneficial to the community (this is a broad, catch-all category). The purpose must benefit the public, not just a small group of individuals.
- Indefinite Beneficiaries: Charitable trusts do not require ascertainable beneficiaries in the same way that private trusts do. The beneficiaries can be a general class of persons (e.g., “homeless individuals in Los Angeles,” “students at Stanford University”) or the public at large. The benefit must be to a sufficiently large or indefinite class so that the community is interested in its enforcement.
- Intent to Create a Trust: The settlor must manifest an intention to create a charitable trust, using words that impose a mandatory obligation on the trustee to use the property for charitable purposes.
- Trust Property (Res): There must be identifiable trust property.
- Trustee:
Cy Pres Doctrine (Probate Code § 15409): If the specific charitable purpose becomes illegal, impossible, or impracticable to carry out, the court can apply the cy pres doctrine (“as near as possible”) to modify the trust and direct the property to be used for a similar charitable purpose, if the settlor had a general charitable intent (rather than a specific, exclusive intent to benefit only the named charity or purpose).
Enforcement: The California Attorney General has primary responsibility for supervising charitable trusts and ensuring they are properly administered. Beneficiaries (if identifiable) may also have standing to enforce the trust.
Comparison to Private Trusts:
- Beneficiaries: Private trusts require ascertainable beneficiaries; charitable trusts do not.
- Rule Against Perpetuities: Charitable trusts are generally exempt from the Rule Against Perpetuities (they can last forever).
- Cy Pres: This doctrine applies only to charitable trusts.
Policy: Charitable trusts are favored in the law because they provide significant benefits to society. The more lenient rules (no ascertainable beneficiaries, exemption from RAP, cy pres) are designed to encourage charitable giving and ensure that charitable gifts are used for their intended purposes.
Examples:
- A trust to provide scholarships for needy students.
- A trust to support medical research.
- A trust to maintain a public park.
- A trust to operate an animal shelter.

Question 5

WILLS & TRUSTS – Trusts

4. Termination of an Irrevocable Trust

Answer 5

WILLS & TRUSTS – Trusts

4. Termination of an Irrevocable Trust

Under common law, an irrevocable trust generally could not be terminated prematurely, even if all beneficiaries agreed, if a material purpose of the trust remained unfulfilled. California law, however, provides statutory mechanisms for modifying or terminating irrevocable trusts, even if a material purpose remains, under certain circumstances, such as with the consent of all beneficiaries or upon a showing of changed circumstances. (Cal. Prob. Code §§ 15403, 15404, 15409)

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The termination of an irrevocable trust in California is governed by specific provisions of the California Probate Code. The general rule is that an irrevocable trust, by its nature, cannot be revoked or terminated by the settlor after its creation. However, California law recognizes several exceptions, balancing the settlor’s original intent with the need for flexibility in unforeseen circumstances.
Key Statutory Provisions:
- Termination by All Beneficiaries (Probate Code § 15403):
- If all beneficiaries of an irrevocable trust consent, they may petition the court to modify or terminate the trust.
- Limitation: The court will not order termination, even with unanimous consent, if it finds that continuance of the trust is necessary to carry out a material purpose of the trust. A spendthrift provision is a factor to show material purpose.
- Termination by Settlor and All Beneficiaries (Probate Code § 15404):
- If the settlor and all beneficiaries consent, they may compel modification or termination of the trust.
- This applies even if a material purpose of the trust remains unfulfilled. The settlor’s consent effectively overrides the “material purpose” limitation.
- Changed Circumstances (Probate Code § 15409):
- On petition by a trustee or beneficiary, the court may modify or terminate the trust if, due to circumstances not known to the settlor and not anticipated by the settlor, continuing the trust under its original terms would defeat or substantially impair the accomplishment of the trust’s purposes. This is a significant exception, allowing for court intervention even without beneficiary consent.
- Trust Principal Uneconomically Low (Probate Code § 15408):
- If the principal of the trust becomes so low that it is uneconomical to continue administering it, the court may order termination.
- Merger
Comparison to Revocable Trusts: A revocable trust, by contrast, can be amended or revoked by the settlor at any time during their lifetime.
Policy: These rules balance the settlor’s intent (as expressed in the irrevocable trust) with the need for flexibility to address unforeseen circumstances and the desires of the beneficiaries (and, in some cases, the settlor). The “material purpose” doctrine, in particular, protects the settlor’s original intent, while the changed circumstances provision allows for adaptation to new situations.
Examples:
- All Beneficiaries Consent, No Material Purpose: If all beneficiaries of an irrevocable trust agree that they want to terminate it, and there is no unfulfilled material purpose (e.g., it was simply a trust to manage assets, and the beneficiaries are now all competent adults), the court will likely grant termination under § 15403.
- All Beneficiaries Consent, Material Purpose: If the trust was created to provide for the education of the beneficiaries, and they are all still in school, the court would likely not terminate the trust under § 15403, even with unanimous consent, because a material purpose (education) remains unfulfilled. However, if the settlor also consents, termination would be possible under § 15404.
- Changed Circumstances: A trust was created to provide income for the beneficiary’s lifetime, but due to unforeseen changes in the economy, the trust income is now grossly insufficient to meet the beneficiary’s needs. The court might modify the trust under § 15409 to allow for invasion of principal, or even terminate it, if that is the only way to fulfill the trust’s purpose of providing for the beneficiary.

Question 6

WILLS & TRUSTS – Trusts

4. Duty to Distribute in Accordance with the Trust Document

Answer 6

WILLS & TRUSTS – Trusts

4. Duty to Distribute in Accordance with the Trust Document

Under California Probate Code § 16000, a trustee has a duty to administer the trust according to the terms of the trust instrument. This includes the duty to make distributions of income and principal to the beneficiaries as directed by the trust document.”

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The most fundamental duty of a trustee in California is to administer the trust according to its terms (California Probate Code § 16000). This includes, critically, the duty to make distributions of income and principal to the beneficiaries as directed by the trust instrument.
Scope of the Duty:
- Follow the Trust Instrument: The trustee’s primary obligation is to follow the express provisions of the trust document regarding distributions. This includes:
- Identifying the beneficiaries entitled to distributions.
- Determining the timing of distributions (e.g., mandatory annual income distributions, distributions upon reaching a certain age, distributions upon the occurrence of a specific event).
- Calculating the amount of distributions (e.g., specific dollar amounts, percentages of income or principal, formulas based on needs or other factors).
- Determining whether a distribution is mandatory or discretionary
- Exercise Discretion Reasonably: If the trust instrument grants the trustee discretion in making distributions (e.g., “to distribute as much income or principal as the trustee, in their sole discretion, deems necessary for the beneficiary’s health, education, maintenance, and support”), the trustee must exercise that discretion reasonably, in good faith, and in accordance with any standards set forth in the trust. Even “absolute” or “sole and uncontrolled” discretion is subject to judicial review for abuse of discretion. The trustee must consider the purposes of the trust and the needs of the beneficiaries.
- Compliance with Law: The trustee must also administer the trust in accordance with California law, even if the trust instrument is silent on a particular issue. This includes complying with the Probate Code’s provisions on trustee duties, accounting, and beneficiary rights.
Interpreting the Trust Instrument: If the trust terms are ambiguous, the trustee should seek guidance from the court. The primary goal of trust interpretation is to ascertain and effectuate the settlor’s intent.
Related Duties: The duty to distribute according to the terms of the trust is closely related to other trustee duties, including:
- Duty of Loyalty (to act solely in the beneficiaries’ interests).
- Duty of Impartiality (to treat multiple beneficiaries fairly).
- Duty of Care (to administer the trust prudently).
- Duty to Account and Inform (to keep beneficiaries reasonably informed).
Consequences of Breach: Failure to make required distributions, making improper distributions, or abusing discretion in making distributions can constitute a breach of trust. Remedies for breach may include:
- Surcharge: Holding the trustee personally liable for any losses to the trust or beneficiaries.
- Removal as trustee.
- Denial of compensation.
- Orders compelling the trustee to make distributions.
- Other equitable relief.
Policy: This duty ensures that the settlor’s wishes, as expressed in the trust instrument, are carried out, and that the beneficiaries receive the benefits they are entitled to.